Module 04: Assignment

Chapter 9

Problems 9-40

The benefits that USSI would gain from implementing a budgeting system is that it would allow them to
track the businesses performance throughout the year, so that they can make adjustments or changes
as needed and take advantage of any growth opportunities. Additionally budgets allow for businesses to
create a cushion, if any unexpected expenses arise. Since USSI is a new business, it is important for them
to plan for longevity, especially as they consider expansion. Budgets allow management to set goals and
plan ahead.

Problem 9-42

1. Sales Budget: Budgeted Sales $ = (Budgeted Unit Sales)(Budgeted Sales Prices)

Box C Box P
# of units 500,000 500,000
Sales Price per $90.00/ 100 $130.00/100=
unit =.9 1.3
Sales Revenue $450,000 650,000

Total 1,100,000

2. Production Budget: Units To Be Produced = Budgeted Unit Sales (from 1) + Desired Ending
Finished Goods - Beginning Finished Goods

Box C Box P
Sales in Units 500,000 500,000
Desired Ending 5000 15,000
Inventory
Total units 500,000+5000+505,000 500,000+15,000=515,000
required
Expected 10,000 20,000
Beginning
Inventory
Units to be 505-000- 515,000-20,000=495,000
produced 10,000=495,000

3. Direct Material Budget

Paperboard Box C Box P TOTAL

Production 495,000 495,000
Requirements
 Raw Material per 30/100 = .3 70/100= .7
box
Raw material .3*495,000= .7*495,000= 495,000
required 148.500 346,500
Desired Ending 5000
inventory
Raw Material 500,000
needed in total
Beginning raw 15,000
material
Raw Material to 500,000-
be purchased 15,000=485,000
Paperboard Price .20
per pound
Cost of Purchase $97,000

Corrugating Box C Box P Total

Medium
Production 495,000 495,000
Requirements
Raw Material per 20/100= .2 30/100= .3
box
Raw material 99,000 148,500 247,000
required
Desired Ending 10,000
inventory
Raw Material 257,500
needed in total
Beginning raw 5,000
material
Raw Material to 252,500
be purchased
Price per pound .10
Cost of Purchase $25,250

Total Cost of Raw 97,000+25,250 =

Material
$122,250

4. Direct Labor Budget: (Units to be Produced)(D.L. Hours Budgeted per Unit) and (D.L. Hours
needed for Production)(Budgeted Rates Per Hour)

Box C Box P Total

Product requirement 495,000 495,000
Direct Labor Required .25/100 boxes= .0025 .50/100 = .005
 Direct labor required 495,000 x .0025 = 495,000 x .005 = 3,712.50
for production 1,237.50 2,475
Direct Labor Per Hour $12.00
Total Cost $44,550

5. Manufacturing Overhead Budget

Listed in the text book on page 417, Chapter 9.

Indirect Material $10,500

Indirect Labor $50,000
Utilities $25,000
Property Taxes $18,000
Insurance $16,000
Depreciation $29,000
Total $148,500

6. Selling and Administrative Expense Budget

Listed in the text book on page 418, Chapter 9.

Salaries and Fringe Benefits of sales personnel $75,000

Advertising $15,000
Management Salaries and Fringe Benefits $$90,000
Clerical Wages and Fringe Benefits $26,000
Misc Administrative Expenses $4,000
Total $210,000

7. Budgeted Income Statement

Total Sales Revenue 1,100,000

Less Variable Cost: (148,000)
Costs of goods sold (320,000)
Selling and (210,000)
administration
Net Income $422,000-168800
(.40) = $253,000

Chapter 10

Problem 10-36

1.
Type I Fertilizer

Direct-Material Price Variance: Actual Quantity Used x Actual Price

3,700 pound X .53 = $1961

Actual Quantity used x standard price

3,700 x $.50 + $1850

Direct Material price variance= $111 Unfavorable

Direct Material Quantity Variance: Actual Quantity Used x Standard Price

3700 pounds x $.50 = $1850

Standard Quantity allowed x standard price

40 pounds x 55 clients x 2 applications = 4,400 pounds x .50 = $2,200

Direct Material quantity variance = $350 Favorable

Direct Material Purchase price Variance: Actual quantity purchased x actual price

5,000 pound x $.53 = $2,650

Actual quantity purchased x standard price

5,000 x $.50 + $2500 Unfavorable

Direct Material Purchased per price variance= $150 Unfavorable

Type II Fertilizer

Direct-Material Price Variance: Actual Quantity Used x Actual Price

7,800 pound X .40 = $3,120

Actual Quantity used x standard price

7,800 x $.42 + $3,276

Direct Material price variance= $156 Favorable

Direct Material Quantity Variance: Actual Quantity Used x Standard Price

7,800 pounds x $.42 = $3,276

Standard Quantity allowed x standard price

40 pounds x 55 clients x 4 applications = 8,800 pounds x .42 = $3,696

 Direct Material quantity variance = $420 Favorable

Direct Material Purchase price Variance: Actual quantity purchased x actual price

10,000 pound x $.40 = $4,000

Actual quantity purchased x standard price

10,000 x $.42 + $4200 Unfavorable

Direct Material Purchased per price variance= $200 favorable

2.

Direct Labor Variance = Actual Cost – Allowed Cost

Actual hours used x actual rate= 165 hours x $11.50 = $1,897.50

Actual hours used X standard rate +165 hours x $9.00= $ 1485.00

Direct Labor Rate Variance = $412.50 Unfavorable

Direct Labor Efficiency Variance = Actual hours used x standard rate = 165hours x $9.00 =$1,485.00

Standard hours allowed x Standard rate = 220 hours (40 min x 55x 6) x $9.00 = $1,980.00

Direct- Labor Efficiency Variance= $495.00 Favorable

3. Actual Cost of Application

Type I Fertilizer: Actual Quantity used x Actual price (3,700 x .53) = $1,961.00

Type II Fertilizer: Actual Quantity used x Actual price (7,800 x .40) = $3,120.00

Direct Labor: Actual hours used x actual rate (165 hours x 11.50) = $1,897.50

Total actual cost: = $6,978.50

The service was a success. Since typically the landscaping business makes $13,200 for fertilizer
application between the 55 clients paying $40 per there 6 applications. The “cost” to operate is
$6,978.00, therefore the profit is $6,221.50.

4.
 a). Looking at the overall cost-control perspective of the new service, I would say it was mostly a
success. The only thing that would be better is if the cost of labor could be closer to the standard rate,
since the area that the business is in they have a tight labor market which increases the cost of labor.

b. Since Sal’s landscaping business is using less fertilizer than the standard amount, the
complaint could be that customers aren’t seeing the intended results. They could be complaining that
they are spending premium fees on a product that they are not getting the full benefit from.
Additionally, with the cost of labor being significantly higher, the other complaint could be that the
single employee is unable to complete all 55 customers’ homes in a timely manner.

5. I think that the issues listed in the previous question could be remedied by either hiring
additional help, which would increase the overall actual cost and decrease profit, however Sal would still
be profiting about $4,324 if he hired an additional employee working the same amount of hours for the
same rate. Additionally, with another employee, Sal could potentially take on more client homes.

Chapter 11

Exercise 11-32

Variable Overhead Spending Variance = Actual variable overhead – (AQ x SVR)

= 2,340,000 – (275,000 direct labor hours x $ 8.00 per hour)

= $140,000 Unfavorable

Variable Overhead Efficiency Variance = SVR (AQ-SQ)

= $8.00 per hour (275,000- (56,000x5))

= $40,000 Favorable

Fixed Overhead Budget variance = Actual fixed overhead – Budgeted Fixed overhead

= $3,750,000 – (300,000 capacity x $12) =

$3,750,000-$3,600,000

= $150,000 Unfavorable

Fixed overhead volume variance= Budgeted fixed overhead – Applied fixed overhead

= $3,600,000 – ($12 per hour x 5 hour per unit x 56,000 produced)

= $3,600,000 - $3,360,000

= $240,000 Unfavorable

Exercise 11-34
Formula found on Pg. 500

Sales-Price Variance = (Actual Sales Price – Budgeted Sales Price) x Actual sales Volume

= ($103,500/9000=$11.50)

= ($120,000/10,000=$12.00)

($11.50-$12.00) x 9,999 = $4,500 Unfavorable

Sales Volume Variance = (Actual Sales Volume – Budgeted Sales Volume) x Budgeted Sales Price

= (9,000-10,000) x $12 = 12, 000 Favorable

Problem 11-42

1. The advantage of a flexible budget is that it is adaptable. With the many changes that SoftGro is
experiencing, having a flexible budget allows management to respond to unanticipated
conditions or take advantage of unexpected opportunities. This flexibility allows manager to
improve planning and decision making.

2.

Flexible Monthly Expense Report for November

Flexible Budget Actual Variance
Advertising $165,000 $1,660,000 $10,000 U
Staff Salaries 125,000 $125,000
Sales Salaries 108,000/90 staff members $115,400 200 (U)
= ($1200) x (96 including
new members ) = $115,200
Commissions $496,000 $496,000
Per Diem Expense (148,500/90)=1650/15=11 $162,600 4,200 U
0 per day. $110 x 15 days=
1650x96 employees=
$158,400
Office Expense 4,080,000- $358,400 7,600 (F)
3,000,000/54,000= $20 per
order. (3,000,000/12
months) + ($20 x 5800) =
366,000
Shipping Expenses 6,750,000 – ($3 x $976,500 16,000 (F)
2,000000) / 12 = $62,500/
($3 x 310,000) = $992,500

Total $3,903,100 $3,893,900 $9,200 (F)